Accurate forecasts of corporate financial performance are highly valued by enterprises as inputs to internal decisions as wells as by investors as inputs for investment decisions. For investors, an enterprise's financial performance can directly determine investment returns, as when profits are distributed to shareholders as dividends or when a firm declares bankruptcy after running out of cash. The enterprise's financial performance can also influence investment returns by changing perceptions about the enterprises inherent value, as when investors bid up the price of a stock when its earnings per share were higher than expected.
The importance to investors of accurate information about financial performance is underscored by government requirements for public companies to disclose, audit, and certify financial statements on a regular basis. In the United States, the Security and Exchange Commission (SEC) requires publicly traded U.S. corporations to file financial reports quarterly following generally accepted accounting principles (GAAP). GAAP financial reports are a common language for investors, analysts, auditors, and management to describe the performance of a firm. A public repository of historic financial statements for companies traded in the United States is maintained at The United States Securities and Exchange Commission Electronic Data Gathering, Analysis and Retrieval (SEC EDGAR).
Typically, a GAAP financial report comprises a firm's Income Statement, Balance Sheet, and Statement of Cash Flows, as well as notes from the firm's management, for a particular accounting period. The usual accounting period in the U.S. is a fiscal quarter, and the SEC requires U.S. public companies to file financial statements quarterly. The Income Statement summarizes revenues & costs of goods sold, operating expenses, and the resulting overall profits or losses during the period covered by the financial statement. The Balance Sheet summarizes the firm's assets and liabilities at the end of the period covered by the financial statement. The Statement of Cash Flows summarizes the increase or decrease in the firm's cash over the period covered by the financial statement associated with profits, losses, investments, and other financial activities. Whereas the Income Statement and Statement of Cash Flows describe change or increments in quantities over the course of the accounting period, the Balance Sheet describes a snapshot of the firm's accounts and inventories at the end of the accounting period. Such an elaborate structure has evolved because none of the individual components alone provides an accurate view. The importance to investors of understanding each of the components comprising a GAAP financial statement is underscored by the requirement by the SEC for firms to provide a full GAAP report every quarter.
Much of the rest of the world uses the International Financial Reporting Standards (IFRS) instead of GAAP as the accounting standard. An IFRS report has a similar structure but also includes either a statement of changes in equity or a statement of recognized income or expense. In general, the components of a financial statement, whether GAAP or IRFS, whether the Income Statement, Balance Sheet, etc., comprise a set of numerical line items. Some line items can be derived from others. For example, Gross Margins, a line item commonly provided on the Income Statement, can be derived by subtracting the Cost of Goods Sold from Total Operating Revenues, two other line times from the Income Statement. Likewise, if one knows Total Operating Revenues and Gross Margins, one can derive the Cost of Goods Sold.
Additionally, macroeconomic data is created by institutions such as government agencies in analogous form to the financial statements of companies. For example, the Gross Domestic Product of a country is analogous to line items from the Income Statements of a firm. Like the line items of the financial statements of firms, some macroeconomic data is also definitionally related to other macroeconomic data. Public repositories of macroeconomic data also exist. For example, the Federal Reserve Bank of St. Louis provides a repository of historic U.S. macroeconomic data. Historic macroeconomic data is typically displayed as a set of line items.
Fortunately for investors, publicly available financial reports, together with publicly available macroeconomic data, provide a wealth of information that can be used to create financial forecasts. This information includes not only financial reports for the given firm over long history of accounting periods, but also financial reports from thousands of other firms. Nevertheless, most enterprises lack the means to create competitive forecasts from this wealth of information or to identify correlations resulting from jointly determined behavior. Software tools or services are not available to enterprises today for this purpose.
Accordingly, what is desired is to solve problems relating to processing large datasets of financial information available from publically accessible sources for purposes of business intelligence and comparative analysis, some of which may be discussed herein. Additionally, what is desired is to reduce drawbacks relating to integrating the reported financial information of competing enterprises into financial systems of an enterprise, some of which may be discussed herein.